IRS Releases Certain Inflation-Adjusted Figures for 2013; But Holds Off on Others
(Parker Tax Bulletin October 28, 2012)

The uncertainty about what will happen with next year's tax rates and some prominent deductions and credits crept into the annual inflation-adjusted revenue procedure that the IRS issues each fall. The 2001 Bush-Era tax cuts that were originally scheduled to end in 2010 but were extended through 2012 have been the subject of much debate between the presidential candidates, President Obama and Governor Romney. The current expiration date for most of these tax cuts is December 31, 2012. Thus, for example, the overall limitation on itemized deductions that used to apply to high-income individuals but was phased out under the Bush-Era tax cuts is scheduled to return in 2013, as are higher tax rates in general. While President Obama has called for increasing rates on the top-income earners, he has advocated keeping the lower rates for everyone else. Governor Romney has advocated an across-the-board 20 percent tax rate cut, but has also mentioned capping deductions. As a result, in Rev. Proc. 2012-41, the IRS didn't release all the inflation-adjusted numbers that it normally would, presumably because it is waiting to see what the future holds.

The inflation-adjusted numbers for 2013 include the following:

(1) The annual exclusion for gifts is $14,000 (up from $13,000 in 2012).

(2) The first $143,000 (up from $139,000 in 2012) of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during the year.

(3) The amount used to reduce the net unearned income reported on a child's tax return subject to the kiddie tax, is $1,000 (up from $950 for 2012).

(4) The foreign earned income exclusion amount is $97,600 (up from $95,100 in 2012).

(5) The exclusion from income for U.S. savings bond interest for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $112,050 for joint returns (up from $109,250 in 2012) and $74,700 (up from $72,850 in 2012) for other returns. The exclusion is completely phased out for modified adjusted gross income of $142,050 (up from $139,250 in 2012) for joint returns and $89,700 (up from $87,850 in 2012) for other returns.

(6) For purposes of medical savings accounts, a "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,150 (up from $2,100 in 2012) and not more than $3,200 (up from $3,150 in 2012), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,300 (up from $4,200 in 2012). For tax years beginning in 2013, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,300 (up from $4,200 in 2012) and not more than $6,450 (up from $6,300 in 2012), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $7,850 (up from $7,650 in 2012).

(7) The limitations for eligible long-term care premiums includible in the term "medical care" are: for individuals with an attained age of 40 or less before the close of the tax year, $360 (up from $350 in 2012); more than 40 but not more than 50, $680 (up from $660 in 2012); more than 50 but not more than 60, $1,360 (up from $1,310 in 2012); more than 60 but not more than 70, $3,640 (up from $3,500 in 2012); and more than 70, $4,550 (up from $4,370 in 2012).

(8) For the estate of a decedent dying in calendar year 2013, if the executor elects to use the special use valuation method for qualified real property, the aggregate decrease in the value of qualified real property resulting from the election to use Code Sec. 2032A for purposes of the estate tax cannot exceed $1,070,000 (up from $1,020,000 for decedents dying in 2012).

(9) The amount that would be includible in the gross income of a covered expatriate is reduced (but not below zero) by $668,000 (up from $651,000 in 2012).

(10) The value of fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry exempt from levy cannot exceed $8,790 (up from $8,570 in 2012). The value of books and tools necessary for the trade, business, or profession of the taxpayer that are exempt from levy cannot exceed $4,400 (up from $4,290 from 2012).

(11) For an estate of a decedent dying in calendar year 2013, the dollar amount used to determine the "2-percent portion" (for purposes of calculating interest under Code Sec. 6601(j)) of the estate tax extended as provided in Code Sec. 6166 is $1,430,000 (up from $1,390,000 in 2012).

(12) The attorney fee award limitation is $190 per hour (up from $180 in 2012).

(13) The stated dollar amount of the per diem limitation for periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $320 (up from $310 in 2012).

Rev. Proc. 2012-41 does not include the following items that, in the past, have been included:

(1) the tax rate tables;
(2) the adoption credit;
(3) the child tax credit;
(4) the Hope Scholarship and Lifetime Learning Credits;
(5) the earned income credit;
(6) the standard deduction;
(7) the overall limitation on itemized deductions;
(8) the qualified transportation fringe benefit;
(9) the adoption assistance exclusion;
(10) the personal exemption;
(11) the election to expense certain depreciable assets;
(12) the interest on education loans; and
(13) the unified credit against estate tax for decedent's estates.

According to the IRS, the above items will be addressed in future guidance.

Parker Tax Publishing

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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